It’s an education as essential for students as the pursuit of higher learning towards a future career, but it’s unlikely to be found on class schedules or the course calendar.
Financial planning should be a priority for students heading off to college and university, according to experts who say learning how to manage money can help young people avoid financial pitfalls that could saddle them with debt down the road.
Murray Baker, a Vancouver-based writer and educational financial consultant, said students should have a road map for the semester or year to assess their resources, like savings, bonds and scholarships, and determine when they’ll be available. They should also map out key expenses, like tuition, books and rent, allowing them to allocate their remaining funds. “By doing this, you know ahead of time what your expenses and what your resources are going to be,” said Baker, author of The Debt-Free Graduate. “If you see there is a shortfall and you start working, say, eight hours a week, far better to do this than to have no plan, and then say in the beginning of March, ‘Oh, gee, I’m totally out of cash,’ and then have to scramble.”
Al Nagy, certified financial planner with Investors Group Financial Services in Edmonton, said a general guideline is 10 per cent of everything students earn should be theirs to keep. “In the early years of expenses with tuition and that, the reality is there’s not a lot of saving going on for long-term; it’s usually short-term saving,” he said. “If I was to say 10 per cent of everything you earn should be yours to keep to a student that has graduated, you should be saving this for major purchases or long-term goals or medium-term goals. But when it comes to paying yourself first for students, I’m talking about setting a little bit aside for emergency issues and for fun stuff.”
For students living away from home, Baker said many are making a lot of financial decisions for the first time while dealing with “incredible pressure” to spend money to keep up with peers, but they can still have a great time socially without breaking the bank. For example, Baker suggests having a potluck with roommates instead of dining out. When you do, take advantage of student discounts which may be offered on certain nights. Most schools also offer activities on-campus which students can take part in at a minimal cost.
“It’s like when you go off travelling,” Baker said. “You can go to a city and spend a fortune going to all the places that the tourists go to that are very touristy and expensive, and you can have an equally, if not better, experience going to places where the locals go which are often a fraction of the costs.”
Students may also feel tempted to sign up for credit cards. Baker suggests avoiding them in first year entirely until you’ve got a handle on your expenses. If you still feel you must have one in second year, get a no-fee, low limit card, avoid cash advances and ensure you pay it off.
Nagy said credit is a double-edged sword: a good thing if used wisely, but very harmful if one gets carried away. “From a point of view of establishing credit, yes, do it, I encourage that, because it will help you down the road with your credit history; but at the same time, don’t use it for money you don’t think you’re going to have,” he said. “If you can’t pay it off every month, don’t be using it. It’s that simple.”
But what if students find they’re in the red and need to dig themselves out of a financial hole? For credit card debt, Baker suggests applying for a consolidation loan from the bank to pay off the balance so they pay back the money at a lower interest rate. He also suggests going to the financial aid office to find out about bursaries awarded to students based on need.
In some provinces, there are also work-study bursaries, while some schools even have food banks if students are really struggling, he added. “What’s important is to not sit there and do nothing and let the interest charges on your credit card pile up,” he said. “Take some action and try and get that out of the way and make sure you’re not getting into that same trap again.”
Baker and Nagy agree it’s never too early to start saving, but where to invest funds depends on the individual. Baker said it’s important to determine when you’ll need the cash. Don’t invest in volatile or risky mutual funds if you’ll need cash in your first year and the investment could be worth less when the time comes to access money, he said.
Looking for scholarships as early as Grade 9 or 10 can help students determine the criteria they need to meet, whether it’s grades or community involvement, Baker said.
Above all, the key for students is to get organized, Nagy said. “This is as much of a learning process for managing your money as it is a learning process for your future career and so it’s a real growing up period,” he said. “Being organized will help you get a handle and stay on top of it.”
-with a report from CP